There may be errors in spelling, grammar, and accuracy in this machine-generated transcript.

Roger Harris: Hello everyone. It's time for another another federal tax update podcast. And this is Roger Harris and joined, as always by Andy Schwab. Andy, how's things in Texas today?

Annie Schwab: Doing pretty good in Texas. I see you're back in your office after all your tax forums and Washington visits. I'm shocked to see you at your desk.

Roger Harris: Yeah, well, look quickly because I'm off again next week to San Diego to wrap up the IRS forums, which have been they're good. And, you know, we'll talk a little bit [00:00:30] about kind of lessons learned. I know you were at the one in New Orleans.

Annie Schwab: Correct.

Roger Harris: So I think there were you didn't go to Orlando. There were 4300 attendees in Orlando.

Annie Schwab: That's a great.

Roger Harris: Turnout. And I just came back from Baltimore. And I think there's about 2300 there. So everybody likes to go to Disney World, I guess.

Annie Schwab: I guess so, right. Last minute family vacations.

Roger Harris: That's right. Squeeze it in. Um, well, we're recording this. We're heading uh, [00:01:00] quickly towards a September deadline, and then we'll have an October 1st, and then it'll be time to start planning for the next one. Starts next year.

Annie Schwab: There really is a full year. It's a busy season all year round. I don't really think that there's a set busy season at this point anymore.

Roger Harris: Yeah, April 15th still has its kind of traditional feel to it. Like, wow, the biggest part is over. But maybe that's not true anymore. I mean, there's more and more people that file after April 15th and it runs all [00:01:30] the way to October unless you're in a disaster area. And then it goes.

Annie Schwab: Exactly.

Roger Harris: Goes on beyond that. So kind of the endless tax season. And while you guys have been heads down working on this, there has been some new things. So Annie and I are going to try to share with you some, some changes that are not some changes so much as some new information that's coming out on, um, OB three or the one big beautiful bill or whatever it's called.

Annie Schwab: Uh, All right.

Roger Harris: Nowhere near everything is out. [00:02:00] But there has been some, uh, new information, and hopefully we'll get more as time goes by. But, you know, let's start Annie talking about, uh, the first thing, I guess, that we got. Well, I guess the first thing we're going to talk about, I don't know if it was first and what we got, but if you remember the whole new no tax on tips, we were going to get a list of the businesses that would broadly qualify. As we'll say in all of this, we're still waiting on a lot of guidance, but we did get the list of [00:02:30] the businesses where tipping would qualify and any. I think there were a lot that we expected and a few that we didn't.

Annie Schwab: Yeah, I agree, um, we had been waiting on it and this is just a preliminary list. Um, so we do expect, you know, some clarification. But they did, you know, obviously the beverage and food service industry, um, you know, bartenders and your, your waiters, um, you know, the, the fast food workers dishwasher. All the all of those bakers. Um, the wait [00:03:00] staff hostess, those those were all common. I didn't in that category. So to say I didn't find too many shocking things, they tried to separate it into, like food and beverage. You know, there's like an entertainment section. There's hospitality, there's some home services, personal services. They kind of grouped it into categories and I forget the number like 68. Um, if I recall something around that, um, amount of listed preliminary, um, industries [00:03:30] that meet the definition of an occupation that customarily and regularly receives tips. Um, and so, as you said, it is part of um, and so we've got, you know, some common ones and then maybe not so common ones.

Roger Harris: Yeah. And the food and beverage is where we're really waiting for a lot more guidance because of the, the ways restaurant and food and beverage establishments can work with, um, you know, tip sharing and the whole issue of service. [00:04:00]

Annie Schwab: Pooling.

Roger Harris: Tip pooling, all that. So again, this is this is the start. This is the easy stuff right.

Annie Schwab: Yeah.

Roger Harris: And and each of these eventually. And we'll talk more about this when we get to the draft of the W2 for next year. Each of these things will be assigned a number that you will have to put on the W2 to indicate what kind of business, um, these tax free tips came from. And yeah, there was a lot of things that, uh, kind of jumped out at me that really [00:04:30] either I'm a bad human being and didn't realize I was supposed to be tipping these people, or they have a really good lobbyist, um, to get on the list. But, uh, you mentioned in broad categories like home services, like plumbers.

Annie Schwab: Um, I've never tipped my plumber.

Roger Harris: I gotta tell you, I've never even thought about tipping my plumber. Um, I was just glad he showed up, or she showed up and fixed whatever the problem was. But all of those kinds of plumbers, uh, air conditioner repair [00:05:00] people. Um, I did hear I have asked people about this, you know, lawn maintenance. A lot of people do tip their people who cut their grass. I mean, and this, I'm assuming, is regularly as opposed, like, I think a lot of us do things at holidays and give them money, you know, end of the year or something like that. But, um.

Annie Schwab: Little Christmas gift. I do that with my, my, the mailman or something like that.

Roger Harris: But that didn't make the list, by the way, the mailman did not make the list.

Annie Schwab: He did not make the list, actually. True. That's true.

Roger Harris: Yeah. [00:05:30] So, uh, but I don't I mean, maybe I should, but I mean, I don't tip the guy who cuts my grass unless I ask him to do something extra special, right? Yeah. What I find really interesting, and one of the kind of near and dear to our heart. Andy, I think we've saw that digital creators podcast hosts. So.

Annie Schwab: Yeah. So social media creators, um, Digital content creators is another term for that podcaster. So, um, apparently we're supposed to be getting tips. Roger.

Roger Harris: So, anybody out there.

Annie Schwab: Anybody out there? Want to send me a few bucks? [00:06:00] I'll, um. I'll take it and report it as, um, no tax on tips on on my tax return. But yeah, there were a few, um, you know, one offs that I was kind of like, oh, really? I thought dancers was kind of funny. It didn't necessarily describe the definition of what a dancer is. I mean, I guess, you know, if I did a little dance after someone gave me something, I guess I could produce my fees and and whatnot. Um, it fell right after the [00:06:30] gambling section, so I'm not sure if it's part of, like, the casino entertaining type dancers, but, you know, musicians and singers and the, uh, the disc jockeys and, you know, performers, you know, those kind of people, um, did qualify as well.

Roger Harris: So we all need to learn how to sing or dance. So whatever else we do, we can get tipped for our singing and dancing skills. What's really interesting in some of these, like going back to the plumbers again, um, I've seen a lot of [00:07:00] w-2s for plumbers. Never seen tips on it on any plumbers. W-2s.

Annie Schwab: So yeah.

Roger Harris: I got a feeling if they were getting tipped before they've been tax free in one way or the other.

Annie Schwab: One way or the other, right.

Roger Harris: Before now. So now all of a sudden, are you going to report it and put it on a W-2 just to, to take it off when you file your tax return, assuming you don't, you know, exceed some income limit or something like that.

Annie Schwab: There's some thresholds.

Roger Harris: So it's interesting to look at this list [00:07:30] from first of all just a standpoint of who qualifies, but also look at it and go, I've never seen tips reported by these people before. So are you suggesting.

Annie Schwab: That people are going to try to fit into one of these categories by tweaking their job description or something like that? At.

Roger Harris: Maybe we're trying to smoke out something here because remember, this goes away. This is not a permanent part of the legislation. This is a temporary part. And so what if you see a plumber reporting [00:08:00] tips for the next three years, and then when this goes away, they don't report tips anymore. Is that going to be.

Annie Schwab: Definitely could be some kind of strategy for, uh, like you said, smoking out certain certain people. Um, I mean, they had like a whole section on, um, you know, like wedding photography, event planning. So, like, you have, you know, some of these kind of industries, um, that maybe are not so makes it makes sense, but maybe it's just not ones that you would have [00:08:30] come to. There's like a section about, you know, the people who put out your chairs at the beach, um, or little things like that. Obviously the Uber drivers and the taxi drivers and, you know, babysitters, um, your house cleaners. Those kinds of things. But some of that stuff I don't. And I personally, um, you know, I don't tip on a regular basis more of like, like you said, asking somebody to do something in addition [00:09:00] to or, you know, maybe like a holiday or something like that. So I'm, I think you're going to have to, you know, I can see how let's say you're housekeeping or your maid service would make the list, but do you custom maybe maybe I should be I don't know, uh, do you customarily and regularly tip those workers?

Roger Harris: Yeah. And and maybe, I mean, you know, look at some of these and there's some broad again, the IRS has got to dig in and give us some some additional guidance here. But, you know, [00:09:30] there's a broad category of personal care services, which, you know, I mean, you could do that broadly. But what I might find interesting is you mentioned this occasional, you know, let's say a business has a janitor and comes in and cleans and you go to him and say, hey, I need you to go do the windows. And before I would say, oh, you're $50. Now, I might say, I'll tip you $50 if you clean the windows.

Annie Schwab: Mhm.

Roger Harris: Right. Um, or does [00:10:00] the guy say, well I'll clean the windows if you tip me 50, but I won't clean the windows if you're right.

Annie Schwab: Of course.

Roger Harris: And how does the IRS, you know in their guidance they've got to think through now every little scenario, some of which we're just trying to be humorous about, you know, and talk about. But the reality is some of these things are going to create that sort of incentive disincentive, whatever the case may be, uh, in these industries. Now that what I used [00:10:30] to charge extra for, um, now and then and then you've got the conflict from the guy who owns the plumbing company is out doing the work. They might be willing to discount the bill in exchange for a tip. But they won't want their employees out there doing that because the employee keeps the tip and the business gets the bill. So yeah, you're going to have depending, you know, don't ever send an employee out. Send the owner out so I can negotiate.

Annie Schwab: Well, yeah.

Roger Harris: I mean, there's just going to be all kinds of unintended [00:11:00] consequences of something like this that, you know, we'll never think of all of it. And yet the IRS is supposed.

Annie Schwab: To remember, this is only at the federal level. States, you know, have the opportunity to jump on the bandwagon or, you know, have a different version of this or deny it all together. So we're still I haven't seen too many articles where, you know, a state has come out and said, this is what we're doing. Um, and like you said earlier, it's this doesn't go on forever. [00:11:30] It is retroactive, which, you know, makes it a little bit more complicated, but it does. It is set to expire. Um, it only goes through 2028. Of course, Congress could act and extend it. You know, it could make it permanent. I mean, we never know what could happen, but there's definitely some I want to say, let's say consideration some things to keep in mind, um, as sort of we're waiting additional guidance. I don't even know if we've received. I haven't seen at least that we've received exactly [00:12:00] what the employee and the employer have to have for documentation of proof of tips.

Roger Harris: Um, no, I mean, they keep referring to IRS approved. You know, there are some there's forms that I know probably in restaurants are common.

Annie Schwab: Common. Yeah.

Roger Harris: But again, if if plumbers have been historically getting tips, I doubt that they have gone out and got whatever that form number is that they asked their employees to report the tips to them, you know, on a pay period basis [00:12:30] so they can include them in their wages, because if they include them in their wages, they sure didn't include them in their w-2s at least the ones that I have seen. And the state issue you mentioned, I haven't seen a state make a definitive ruling yet. Now, each state's different. Some states, I think their constitution says we adopt the federal law effective as of a certain date, which would mean everything applies and others have to vote to accept it. Some.

Annie Schwab: And not all on an annual basis. Like, I feel like some vote, you know, to [00:13:00] make it retro or forward or I don't know. I've seen a little bit. I've seen a little bit of talk among what states generally just go with it, like accept it and which ones kind of have their own voting method. Um, but I haven't seen any state, you know, come out and say, this is now what's going to be applicable for 2025 and going forward. Um.

Roger Harris: And we'll talk a little bit about the challenges that IRS is facing. Some may be waiting [00:13:30] to see what the IRS comes out with. More than this. Sure. To see is this something that makes sense? I mean, you know, how are we going to put a dollar amount to it. Uh, how could we audit it or whatever, you know. Because we don't get audited.

Annie Schwab: Kidding, kidding. I'm kidding.

Roger Harris: Well, that's maybe not so kidding, but, you know. So the states may be sitting back for a little while trying to get a better sense of what this is going to finally look like, even though it's retroactive till January. A couple other points on tips. We've covered this before. Um, [00:14:00] that you need to make sure we've talked about the fact that it's just, you know, um, right now, at least we have the information on the federal. We don't know what the states are going to be.

Annie Schwab: Right.

Roger Harris: There is income phase outs, you know, so it's not going to apply to everybody. So I guess if you work at, uh, New York Steakhouse, you know, this might not be quite as advantageous as if you work at a.

Annie Schwab: Yeah, that threshold is, uh, 150 for single and then 300,000 for joint. So I guess [00:14:30] you're right. If you live if you live in a city with really high end restaurants, um, that's something to consider.

Roger Harris: Yeah. I think if you work at the Corner Cafe in Ludowici, Georgia, it's probably okay.

Annie Schwab: But I think you're good.

Roger Harris: Yeah. You work at a big steakhouse in New York. You're not. And a couple of things. Remember, there's there's also a cap. It's 25,000 for married, 25 for, uh, single single. And remind people how those are applied.

Annie Schwab: So this is kind of. Yeah, [00:15:00] it's kind of unusual. We usually don't see, um, like caps, um, based on households versus, like, the individual. So what, it's 25. So whether you if you are single then it's 12 five if you are married and one spouse has tips. Those tips can be claimed all the way up to 25,000, assuming the other spouse is not claiming tips. So it doesn't have to just be 12 five each. It can be a combination or one person. [00:15:30] Um, so that's that's something also to keep in mind. I in fact, I think I went through this on my first go of kind of researching and I didn't catch it. And then I was like, I listened to a podcast and I was like, yes, that is actually how it's read, right? So, you know, that's just a nuance of the language that, you know, you might have just breezed past. Um, but yeah.

Roger Harris: So remember that now, and we're going to kind of pivot from tips into how the compliance part works. [00:16:00] Because remember this is retroactive till January 1st of 2025.

Annie Schwab: And I will mention the no tax on overtime, which we're not going to cover in, you know, today. But that is also retroactive to January 1st of 25. So just a reminder there.

Roger Harris: All of that's for 25 right. And yet none of the forms the w-2s, the W-4, the things that would normally be impacted by something like this are being changed for 2025.

Annie Schwab: No they're not. They came out a couple [00:16:30] of the the Treasury came out not too long ago and was like, we're not going to change the withholding tables. We're not going to issue updated W-2s or W-4 for 2025. And what that actually has resulted in is your paychecks not going to change for 2025? Right, right. Automatically. I mean, I guess you could go make adjustments and get send in a revised W-4, but all of these qualifying industries are going to have to wait until they file their tax return in for their [00:17:00] 2025 tax return to see the benefits of no tax on. So there's a waiting kind of.

Roger Harris: Yeah. And I think that's another kind of like the 25,025. That's something that I think a lot of tipped workers probably didn't anticipate that they assumed as soon as this became law, they would immediately start seeing the the benefits of it. They're not. Yeah. You mentioned they can try to figure out how to change their withholding. The systems just aren't set up yet, though. We'll talk about it in a minute. I'm not sure the [00:17:30] systems when they are set up will be that much better. But anyhow. But you know, make sure that all your clients who have people in these categories know that they'll see the benefit when they file their tax return. And this is kind of a move into the next topic when we get to 2026. We have seen draft forms of both the W-2 and the W-4, which would, in theory, if anybody could understand it, allow [00:18:00] you to benefit on a paycheck by paycheck basis for things like no tax on tips and overtime and even car interest and the other.

Annie Schwab: Several, there's several provisions that are new. Yeah, it's really unfortunate. So Tax Cuts and Jobs Act, the W-4 was like 5 or 6 lines and you put your exemptions. And if you wanted to change your withholdings and then you got to like this number and it was like a 1 or 2. And then based on [00:18:30] that, you could sort of determine, you know, what your withholding status was. It wasn't super complicated. I don't even remember it being multiple pages. I mean, maybe like 2 or 3 pages. Um, you know, it was this concept of like, withholding allowances. How many kids do you have kind of thing based on counted heads? Counted heads? Yes, exactly. Counted heads. Um, and then in 2020, 2018, we remember the personal exemption was was pulled out. Um, and so now we have this concept of like [00:19:00] withholding allowances, but not with, you know, personal exemptions because they became obsolete. And then they decided that, you know, they people I get the goal. The IRS was trying to make it easier for taxpayers to either not over withheld or under withheld to make it a little bit closer to what it was going to actually be when you filed your tax return. Remember, there are a lot of people who anticipate big refunds. There are a lot of people who are like, I always Oh, and so they were [00:19:30] trying to make the revised W-4, which starting in 2020, um, would eliminate sort of these allowances and, and do more. If you think about how a tax return goes, you know, your filing status and your dependents and then here's your income. And do you have deductions and what other things that could affect my situation? Um, trying to get that amount that you're withholding as close as possible to what your [00:20:00] tax liability would be.

Roger Harris: Yeah. And it wasn't perfect, but we all understood it. And we all knew that if I was married with four and I owed money, I could fix it by going married with two or married with one. Right. And we knew if I was getting, you know, single, I could even claim single if I needed to, just to have more. We knew how the system worked. We could raise these allowances, reduce those allowances [00:20:30] which would cause our income tax withholdings to go up or down or whatever the case may be. And while it wasn't perfect, it was understood and we knew how the system worked. And my experience has told me, you know, that since the new W-4 came out, we haven't broken that mentality yet, that most people I mean, I can't tell you how many calls I get saying I got a W-4. How do I put single with two on here? Yeah, yeah, [00:21:00] yeah. Well you can't, you know, but you know, so in, in a, in an attempt to, to give people the ability to break even I guess is maybe that's what your goal is, is so when you file your tax return at the end of the year, you're square. We haven't kept your money when you were entitled to it, and yet you're not going to owe us a big chunk of money. Noble goal. But.

Annie Schwab: Oh, absolutely.

Roger Harris: But I don't know how many years we had been under the other system. And you can change [00:21:30] a form, but you can't change how people think and their habits. Just by changing a form. And I'm not sure we're in better shape.

Annie Schwab: So no I don't. It is difficult. And there's not like, um, a way to say, okay, here's all my answers. Like these are this is what I'm estimating. But like, okay, can you just like I want to add a little bit or take a little bit back or make a small adjustment. And the tables are hard to follow. I [00:22:00] found the tables hard to follow. Um, so I feel like it was sort of like that first year of the W four people just kind of guessed and then based on, you know, the outcome in that first year, they kind of tweaked their kind of how they completed the form, or they updated a form to to tweak it for whatever, which way. But I really wish when, when OB three came out that we would have maybe reverted back to the old version, because now we're just adding more exemptions and more and [00:22:30] more lines and whatnot. I was I was a little disappointed, um, that instead of, you know, going forward starting in 2026, instead of, you know, making it more simple, I think we just made it even more confusing and that much harder. Now we got.

Roger Harris: I don't know how many worksheets we got and tables.

Annie Schwab: Oh, it's.

Roger Harris: Like things like that. And again, you know, again, I'm just what people have told me. If I could do this, I could do my own tax return. Because in essence, that's what you're doing.

Annie Schwab: That's what you're doing. You're estimating your income [00:23:00] deductions. You know.

Roger Harris: Now in any touched on this, and this is something that one of the things that may have saved us, you know, through the old w the current W-4, not the old W-4, is if you owed money, there was an easy way to fix it on the That'd be for like if you if you owed $2,400 and you didn't want to owe $2,400 next year, and you were going to make the same amount of money, you [00:23:30] could say, well, how many times do you get paid? Well, I get paid once a month. Okay. We're going to divide 12 into 2400, and you're going to go with the W-4 and just fill out the line that says extra withholding and put $200 on it. And so they would withhold 200 extra dollars. And in theory, everything being the same, you'd break even. So it worked well when we were short of withholdings and needed to add more. I know what we're going to do here at Paget, by the way. Any of you can [00:24:00] do this, the, uh, the W-4 and the W-2 we're going to talk about are both in a comment period. Yes, yes, you can go to the website. You can pull the forms up. You can see what they look like. And if you have an idea on how to simplify the process or simplify the form, whatever, uh, the instructions are there and you can actually send in comments. So these aren't final forms yet. These are proposed. Um, and one of the things that we're going to propose is we know how to make it work. If you owe money, these new things might reverse [00:24:30] the problem. And now I'm getting a $2,400 refund, and I don't want to wait till the end of the year. So why can't we say reduce my withholding by $200? And I know they're going to push back and say, well, what if they owe and penalties and put all the disclaimers and warnings and everything you need to, but give us a simple way to fix the withholding when it needs to come down, not just when it needs to go up.

Annie Schwab: Right. And I mean, we're talking about tips and [00:25:00] we've mentioned overtime. But you're right. There's the senior deduction. There's the loan car loan interest. That's you know that you can deduct. So I mean there's a number of things to consider. In fact looking at looking at the draft of the W-4, you know they've got you know it's multiple multiple additional pages now. But you know, you've got a spot on there. You know, in step three or whatever step it is, you know, line A, B or C, you know, like you put all these different numbers [00:25:30] on there, whether about, you know, whether you're qualifying children because that's changed. Um, whether you have, uh, overtime tips, um, loan interest, senior deduction. Uh, you know, there's a lot of additional worksheets that go just to get to the number that you put on the form. So I think it's nine pages now. I'm not I really do I think the instructions are nine pages. And so it just it becomes, you know, and then oh well you can just write exempt or do you put a zero here or do you just put a line [00:26:00] through it or do you, you know, like how do you actually complete all of this to get to the result that you want?

Roger Harris: And big companies with HR departments will figure this out. But, you know, it's that same small plumber with 2 or 3 employees that you know now evidently is getting tipped or, you know, the small restaurant with 2 or 3 employees where they are doing the payroll internally. They don't have payroll companies or HR department. All these things add complexity to what appears to be a [00:26:30] very simple part of tax law. And um, so I encourage all of you, I know you're busy trying to get through the next couple of deadlines, but but go look at the W-4, take advantage of the comment period. I mean.

Annie Schwab: Yeah.

Roger Harris: You know, again, we're going to talk a little bit about the IRS later. But you know, historically they pay attention to those comments. And and I don't know if they'll hold a formal. They usually take written comments for some period of time. And then they hold an actual live hearing that if you want to spend your own [00:27:00] money and fly to Washington and get on the witness list, you can stand up in front of people and say, here's my idea and here's why I think whatever you're doing is right or wrong or whatever. They they do try to listen to things. Um, sometimes I think the lawyers get in the way of common sense ideas. You know, I'm sure there's going to be a lot of pushback to the ability to reduce the withholding because, well, look, it's going to create people who, oh, that can't pay it. And then we're going to have collection [00:27:30] problems. They're going to build this case that it's this huge problem. But if our goal is to have an accurate tax return that's at break even, sometimes we got to take less out, not more. And your form currently doesn't make it easy for people to achieve that. So we'll see. But if you if you've got some time and want to look at it, um, it's a good time to kind of get out your frustrations because I think most of the time when this change came years [00:28:00] ago, most of the people in our community were telling the IRS, this isn't going to work. I mean, this is you're making something. I understand the goal, and it's a noble goal, but the average worker is not going to do or be able to do what you're asking them to do. So yeah. And but some of you are probably making money by offering a service as bring me your W-4 and.

Annie Schwab: And I'll help you fill it out. Yeah.

Roger Harris: And I know some softwares will even generate a W-4. So you know.

Annie Schwab: Well, with the W-4 comes the changes [00:28:30] in the W2, W2. So we've got the W2 draft for 2026 along with the instructions. And so now you've got some new codes. Um, you know box 14 A and 14 B have always been there. But now you've got some new codes to reflect the tax law changes. So the W-2s are going to look a little bit different um, starting in 2026. So we'll have you know that that kind of change to if you're on the payroll side preparing these forms.

Roger Harris: Yeah. And again, the form, it's I mean, the stuff that we've gotten [00:29:00] so far in all honesty is the easy stuff.

Annie Schwab: You know.

Roger Harris: We got a list of businesses. Most of them are obvious. All right. We can debate some of them. The W-2 really, if you just took a quick glance at it, you wouldn't look super. Yeah, but we've got new codes for allowable tips. Tips have always been on w-2s, as I'm sure everybody knows now. Now we're going to put in a box the allowable tips if you have something and we don't know what the difference is yet. So we got to wait for that. We got the code. We just don't know how to calculate it yet. But and [00:29:30] overtime is going to have, you know, a place on the W-2 now code as well. Again, we've got to get some guidance on, you know, the the deductible overtime is based on the Fair Labor Standards Act and certain businesses and industries, um.

Annie Schwab: Pay rules.

Roger Harris: Different overtime calculations, different ways. How's that going to be settled? And again, all of this is retroactive to January 1st of 2025.

Annie Schwab: And it's September.

Roger Harris: Yeah, right. The forms aren't [00:30:00] changing. So I'm guessing we'll still have a code or they'll tell us they'll take our best good faith estimate.

Annie Schwab: I like that that just kind of opens the window for whatever you feel like is accurate.

Roger Harris: Can we do that for everything?

Annie Schwab: I. Yeah. Right.

Roger Harris: I mean, while we were. Why? Why does it just work for tips and overtime? I think we should be able to. Well, I don't want to say this, but some people do that anyhow. But I mean, it's. Yeah, you know, we're going to be putting numbers out on forms and claiming deductions [00:30:30] with it was impossible to keep the records because we didn't know we had.

Annie Schwab: To know about it. Right.

Roger Harris: Right. So, uh, how in the world do you ever audit that? Or how do you determine whether that was a good faith estimate, an overly aggressive, a stupid estimate, just flat out cheating and lying and all? I mean, who knows. So.

Annie Schwab: Right, right, right.

Roger Harris: We're in for some interesting times, to say the least. And, uh, but the w-2s they're also out for comment. The W2 and the W-4 are also out for comment. [00:31:00] The W2, I mean, I kind of was expecting exactly what we got. So I don't know that there's really much to comment on that, but. So, uh. But we don't have the codes yet. We have the list of the businesses, we have the code. But there's also a place on the W2 to put the code of the qualifying business. So, uh, we don't have those yet. All right. There's something going on currently, and it's going to probably [00:31:30] be more important in the long run than a lot of the stuff we've talked about. Um, and that's the discussion of the IRS budget, um.

Annie Schwab: And popular discussion this year.

Roger Harris: Yes. Uh, and a very meaningful discussion, given everything that's already happened. So let's remember that the IRS is down about 25% of their workforce through either firings, for a better word, uh.

Annie Schwab: Or people taking [00:32:00] the deal or.

Roger Harris: Taking the deal to go out. You know, there's some court cases about whether some of those firings Rings. Read an article today that Tyga, who was kind of the auditor, came in and looked at the probationary employees that were filed. And this is kind of think about yourself as a worker at the IRS when you when I tell this story, those probationary employees were all let go and got a notice that their work was unsatisfactory. Well, what Tigta came out and said today was most [00:32:30] of those people had never been reviewed. So they had no status as being satisfactory or unsatisfactory. And of those that had I'm making this percentage up, but it's closed, 95% were given satisfactory grades and yet they were all terminated based on unsatisfactory performance. And somebody at the IRS agreed with that.

Annie Schwab: Mhm.

Roger Harris: So now we have a court case where uh, the [00:33:00] whole premise of them being let go is up in Caught some did some rulings. And there, you know, we got so many judges that you can get one ruling one day and another ruling the next day. That's the exact opposite. But I had one IRS person mentioned to me at some meeting I was at, you know, that whoever had to authenticate that or assign it or however it works, I don't know the.

Annie Schwab: Prove it or however.

Roger Harris: Yeah, whatever the process is, say, you know, the president has immunity. I don't. And, [00:33:30] you know, so there's some concern in the workforce that, you know, some of these I'll call them quick, rash, hurried actions, you know, if they cross the line or are they now subject for, um, personal liability for some of these things? Yeah, because they did it. And as we all know, some people who didn't want to do certain things got sent, got fired.

Annie Schwab: So. Well, and then they fired some and brought back some of those people that they had previously fired. And [00:34:00] so it's like, you don't know who's coming, who's going, you know, are you next on the chopping block or, you know, you go to work and half your coworkers are not there? I just I can't even imagine not just the stress, but the tension and the. Yeah, that the work environment.

Roger Harris: And you can see it and feel it when you go to these forums. And I'm sure you saw in New Orleans and I've seen now in four of these is as you talk to people, you can tell, I mean, they literally don't know from day to day, you know, hey, do [00:34:30] they have a job? B what is their job? And in some instances and that's kind of where we started. And we'll come back to the budget. Um, they've got a lot of work ahead of them. This whole, you know, bill that was passed and filing season that is quickly approaching.

Annie Schwab: With fewer resources.

Roger Harris: With fewer resources.

Annie Schwab: And and money and.

Roger Harris: And and yet, you know, and again, the budget's not final and it starts in the house. So we're talking really about what we are seeing from the house. [00:35:00] But they're proposing a big cut to. I heard this weekend back to like 2011 levels.

Annie Schwab: Mhm.

Roger Harris: And I mean I'm sure we can all do better with less. Uh so I'm not sure. I don't know what the right number is. I don't know how many people the IRS needs. I do know what they need to do. And I think we'll all recognize if they're not doing it, [00:35:30] then the question is, are they not doing it because we have incompetent people or they don't have the resources? What's the cause? What is it? But but I'm afraid that a lot of this is not being thought through. It's just being done. Because how do you and the majority of the cuts. Not a big surprise, uh, is coming in the enforcement part of the IRS. So they're basically giving services some money, you know, to keep going, technology, some money to keep going. But we're going [00:36:00] to cut back on enforcement, too, to make these dramatic cuts. And I get that if I'm a congressman or a senator, I mean, nobody's going to vote for me if I go around saying I want the IRS to audit more people. Right. But that's true. But these are the people who collect the money for the government.

Annie Schwab: Right? Without it, the government would not be able to run.

Roger Harris: Right? Now, in theory. And then we'll get into some details. In theory, [00:36:30] they're supposed to have all this done by September 30th.

Annie Schwab: Or there'll be a government shutdown.

Roger Harris: Or there'll be a government shutdown. And normally what happens is they get to the 29th and either do something or extend the deadline. I saw an article today where the Republicans are thinking about funding the government through January 31st and, you know, kicking it down the road. So there's some tough choices to be made. But so the first volley, if you will, came from the house. Um, it's about a 25% cut to the IRS budget. And again, [00:37:00] I don't know if I can get the numbers right, but the vast majority of that is coming from enforcement. Yeah. And again, I get it politically. I get it. If you ask the average taxpayer, where would they want the IRS to do less? They would say enforcement.

Annie Schwab: Yeah. But I don't think anybody is raising their hand for audit or send me some notices or come knock on my door kind of thing.

Roger Harris: But I think we all need to recognize that we have a voluntary [00:37:30] tax system. And again, I can't talk dollars. I can't talk people. But we need to understand that for this tax system to work, we need the right amount of enforcement. And I think sometimes we need to point out how it could impact us. It could impact our clients. Obviously, it's going to impact the IRS. But, you know, we need to find, to me, the way I describe efficient enforcement, and this is easy to do in an analogy, [00:38:00] I don't know how to apply it to the IRS is, you know, how fast would we all drive on our highways if there were no state patrol looking for speeders? That doesn't mean they pull every car over. They pull enough over to slow the rest of us down, and they don't always just pull over the red cars or the blue cars or the cars driven by men or women. It's it's just based on how fast are you driving. And number one, I want to get you off the streets before you kill somebody. But I also want to slow down [00:38:30] the rest of the people because they know I might be out here. So I think we need to judge enforcement, not just on the direct interaction they have with a taxpayer. But do we have enough to make people think that doing things the right way still matters?

Annie Schwab: Well, I was thinking about this the other day. You know, they they raised all the 1099 miscellaneous and NEC reporting [00:39:00] this this coming year. And so now the threshold for you issuing a 1099 to a worker is much higher. So I'm thinking to myself, like that didn't change the fact that the income is taxable. It's always been taxable. But the mindset is, well if I didn't get a form from this, you know, person that I worked for, I don't have to report it. So you've got this, you know there's there's less workers at the IRS. There's less money for compliance. [00:39:30] Um, you're going to see less 1099. So do I want to be the person who, like, if my neighbor's not doing it or my friend's not doing it, like, there's like, this incentive, like, well, nobody else is claiming this as income. Why do I need to claim this as income? Or they should be in there or not? And it makes me angry because I'm doing the right thing and others are not. And so you've got this sort of, you know, Conundrum, I guess, um, of what, what the expectations are going to be of, of taxpayers. [00:40:00] So, I mean, if nobody got audited, I'm sure people would be a little more lenient with their choices on their tax return.

Roger Harris: Well, think about it in the small business community, because what we're going to have is the average person who works a job, maybe their spouse works at a job, they have a mortgage, they have mortgage interest, whatever. The IRS can verify most of that tax return just based on the information that's in their system, correct. But for small businesses, 1090 nines are going to be less prevalent, right? [00:40:30] 1099 kHz will probably still, you know, for a business still be out there, but you can have a competitive disadvantage by doing your tax obligations correctly if there's no enforcement. So I can be I keep coming back to the poor plumbers, but they're my example. So I can have plumber A, who treats all their employees as employees, reports all their income, does all the right things. Competing for a job [00:41:00] against plumber B, who decides? You know what? The IRS doesn't have any way to do enforcement. All my people are going to be contractors. Nobody's going to be an employee. You know what? I'll skim a little bit of money off the top. So all of a sudden, if I'm in a competitive bid with that other plumber, they can underbid me.

Annie Schwab: Yep.

Roger Harris: And take work from me by not following the system and them not being worried about it. So if [00:41:30] we don't have enough enforcement to level the playing field, what are our small businesses going to be pressured into doing?

Annie Schwab: Yeah.

Roger Harris: And none of us benefit. And if they're pressured into doing that, think about the impact it has on us.

Annie Schwab: Right.

Roger Harris: Because I think everyone who's listening to this podcast, everyone that attends a tax conference, your intention is to follow the rules and to and to keep your clients engaged [00:42:00] in following the rules. And I'm sure we've all heard this at some point in our career, and any you can comment on and elaborate on it, but well, gosh, you know, I talked to Joe down the street who does the same thing you do, and they tell me I don't have to do all that stuff. And if I go down there to Joe to get my taxes done, I'll owe $5,000 less than if you do it. Well, if there's no IRS enforcement, what [00:42:30] clients are going to keep coming to you?

Annie Schwab: Right.

Roger Harris: Yeah. And so I think we have to look at enforcement two ways. There is there is needed enforcement where I got to go audit you and do things like that. But there's a there's a sense of fairness and a voluntary tax system that I just think has to has to be there for it to work. And this willy nilly cut it, punish it, make it all [00:43:00] bad. Um.

Annie Schwab: Yeah. There has to be a and I don't know. You're right. I don't know the right dollars. I don't know the right number of workers. But there also has to be I mean, by removing the funding and reducing the workforce, I mean the frustration like they made the IRS has made so much progress with, you know, their technology advancements and modernization. Um, you know, I felt like the year last year, you [00:43:30] know, the phones got answered. Some of the online portals were there, um, returns got processed on time. So you start if you start pulling all of that stuff away, then the taxpayers have a less wonderful experience working with the IRS. Let's say, you know, now their refunds are late or they can't find what this notice means, or they're mailing stuff and never hearing back, or they wait on hold for two hours and then they get disconnected. And, you know, as the frustration grows, they're less likely [00:44:00] to comply because they're feeling like, well, they don't care about me. Why should I care about them? Um, and so you're going to see I expect there'll be less compliance or accurate compliance, um, just because of frustration or or the like. Our promoters, we have promoters that would totally take advantage of taxpayers we saw with IRC. But there's other ones too. Like, you see, I don't know, conservation easements. I know you [00:44:30] were telling me a story about Georgia, but like we had the tribal credits and so if there's not authoritative guidance, then how would a taxpayer know if you know these things really exist and what they mean and how you qualify and what to do with it. And, you know, the pros and cons of it. Um, so I feel like it's it's like the snowballing effect of, you know, yes, you can be more efficient. Yes, you can probably do more with less. There are those arguments, and I agree with you that some [00:45:00] of them are valid. I think there's probably a little fat everywhere, but but it could start this massive snowballing effect that in the end, is not beneficial for anyone.

Roger Harris: Yeah, I had someone who I trust at the IRS tell me when I was in Baltimore Monday and part of Tuesday was the day Wednesday just got back. Um, you know, they're concerned that for the first time in years that, you know, the filing season may not go as smoothly as, you know, despite [00:45:30] what you hear. You know, there is, you know, there's a chance that this filing season could could not go smoothly. And you want to get the taxpayers attention, hold their refunds up. That'll that'll get their attention in a hurry. Yep. And, um. And the other thing, and this is where we need smart people making smart decisions about budgeting, hiring, firing systems, all those sorts of things. Because, again, I don't think [00:46:00] if you don't understand the IRS, well, you're going to make some bad decisions and some that could impact our industry directly. And and, Annie, we've had people who have worked in the communications and liaison part of the.

Annie Schwab: Oh, yeah.

Roger Harris: And they're really smart people. And everybody says, well, what is our I don't need a communications department. Get rid of that. You know, what are they? You know, here's why we should cut. What they don't realize is that's the group that makes sure this guidance we're waiting on gets to us. And, you [00:46:30] know, when we have an issue, they are the people communicating to us. When something happens and what goes on, they're kind of our they're our liaison, you know, with the IRS. I think one thing that I would hope that the IRS will do when you have fewer resources, you have to look creatively. Maybe is the best term on ways to supplement that when you don't have any money. And I think there is an opportunity if, if, if they will empower the [00:47:00] people like communications and liaison and other departments in the IRS stakeholder liaison, liaison. We've met with that. The practitioner community has a lot of valuable information and ability to be a resource to help you do things. And you don't have to pay us. You just have to listen to.

Annie Schwab: Us, to us and take us seriously and.

Roger Harris: Seriously. Yeah.

Annie Schwab: And communicate that back up. You know, they're communicating [00:47:30] from us to the people who are making the decisions, and we're the ones that are in it. We're the practitioners. We have to figure out, you know, how to do this, how to talk to the clients, what this means, how to interpret it. And so if you know, if we're struggling in in that area, those are the people that can help us, right? And you're right. We're free. We're free. You know, we can complain for free all we want.

Roger Harris: Yeah. And some of those complaints are valid and some are and and things like these IRS [00:48:00] forums that we've gone to, you know, that's they're going to probably get in front of when they by the time they do five of them, 15 to 20,000 practitioners, you know, what if and again, these are departments of the IRS that we don't think about. They're not the auditors. They're not the people who answer the telephone. God knows we need people answering the telephone that know what they're doing. And it doesn't take an hour to get an answer and all those sorts of things. And and I just want to see this done smartly and done the right way. And I want [00:48:30] the IRS to be more willing to, to not always have to do things the way they always have done them before. You know, they listen to practitioners a lot, but sometimes they don't always really listen, if you know what I mean. They're kind of paying lip service to us as opposed to really taking us. I think I've said this on Maggie Romanello, who was on one of our earlier podcasts at Stakeholder Liaison. She's our advocate, but sometimes we need her to be our miracle worker, to go get people above [00:49:00] her, to actually listen to us. That's got to change, you know? Right. That we know about, you know, like the W-4 we were telling people years ago, this ain't going to work the way you think it's going to work. But nobody listened to us, so.

Annie Schwab: Maybe we got to scream louder. Maybe we have to. Well, like the things like the comment period. Like, you know, it is important for practitioners to to comment. Um, otherwise, the service just thinks everything's fine. Nobody's making comments. They must like it, you know, [00:49:30] they understand it. They don't have any concerns. So, you know, we probably need to be a little bit more proactive.

Roger Harris: Settle the workforce. Some because they're all afraid to say anything now. I mean, I heard a story of somebody spoke up in a meeting and was summarily walked out the front door and fired. Because what they said, the person running the meeting didn't want to hear it. So, you know, uh, how do you ask someone to take it to the next level if that next level person doesn't want to hear it? So more than just firing [00:50:00] people and cutting budgets, let's let's be creative. Let's recognize the role of the IRS. They do collect the money that the politicians want to spend, and they'll probably pay attention when they realize they don't have any more money to spend because they're not collecting it. But let's recognize that they have a role. We do need an enforcement arm. We do need a fair system. Let's empower practitioners and others from the outside who have good ideas. And let's listen to them. Let's hire the right people, fire the right people. Let's just [00:50:30] don't fire. Last in first out. You know? Quit trying to steal depreciation method. Let's do some sort of.

Annie Schwab: Right.

Roger Harris: You know, uh, thoughtful way of of spending our money and being open. I think there are a lot of good people at the IRS. Unfortunately, a lot of good people said, I'm not staying here anymore. Yeah. They're gone.

Annie Schwab: That's really.

Roger Harris: Troublesome. As I heard a lot of those, uh, retirements don't really kick in till December. So we're going to see another wave going, uh, the end of the year. And, [00:51:00] you know, we we as an industry need a functioning IRS, maybe more than anybody because we're the ones that have to stay on the phone for two hours waiting for someone to answer. And we need a good answer. We need guidance on this bill. You know, we we need a regulation of preparers to make sure good preparers are in business. And bad preparers aren't. Not a system where a bad preparer has an advantage over a good preparer, because they can advocate what people want to hear, not what's right, and get away with it. And again, [00:51:30] let's just do it smartly. Let's cut. We're cutting is needed. Let's improve where improvements are needed and let's make the system better. You know, I'm worried. I'm getting more worried the more I talk to people because I see it's kind of like when you're flying on a plane. They say, don't get nervous till the flight attendants get nervous. And, uh, I'm beginning to see that at some of the people at the IRS now, and they're not just nervous for their job. I knew they were all nervous for their job, but I think now they're worried, you know, are we going to be able to pull this off? Um, if we don't get [00:52:00] some stability and some direction and, um, yeah, have some people who know how the game is played and how it needs to work. And as I challenge them back, I said, well, then bring the practitioner community in in a serious and effective way and, and make sure we're committed to doing the right things, not just trying to stroke our ego because, hey, I got to go talk to this person at the IRS. No. Yeah. Come in. If you've got a good idea and you're willing to, um, to help make it work. [00:52:30] Not just so you get your name and in the tax media right. So we'll see. It's going to be an interesting.

Annie Schwab: It's going to be interesting I was about to say let's see what we between now and the next two weeks when we do a podcast, we could have more information because we're getting, you know, close to one the deadline, but two, the September 30th deadline for, um, the government shutdown. So you might have some new stuff to bring.

Roger Harris: I think we said this on the last podcast. Yeah, I don't think we'll see a commissioner change. I think it's probably.

Annie Schwab: Right. [00:53:00]

Roger Harris: For the remainder of this term. Uh, just because, first of all, there's not enough time left for anybody to want to go through the hassle of, uh, getting nominated and going through all that. I did hear that I will not mention any names in an IRS commissioner is campaigning to be brought back.

Annie Schwab: Oh, wow. I did not know that. But, um. Okay.

Roger Harris: Uh, I will not I will not disclose his name, but I think if you read the tax media, you won't be hard to figure out who it is. You know? Right? When you raise [00:53:30] your hand and say, I'm available.

Annie Schwab: It kind of means, yeah.

Roger Harris: I'm available. So. So I don't know. Well, I think the tax part, I mean, there's some talk in Congress about changing some more tax law, you know, as they solve the spending bills. I just I don't know. I don't know if they can get that done.

Annie Schwab: Yeah.

Roger Harris: Um, right now they just got to fund the government. And anytime you throw up something new and a different change in tax law, it's just another thing. Yeah. I mean, I've seen them don't tax Social Security at [00:54:00] all. Get rid of.

Annie Schwab: The other day that that's coming back. Some things that didn't make it into OB three or now you know getting revisited. I don't know.

Roger Harris: I don't know, I'm more of a belief that we're going to try to get the government funded through the end of the year. Um, and then we'll see how it goes from there. And hopefully they'll just tell the IRS, go do your job. Here's some money. We're not going to fire anybody else unless they just really do something bad. And we're going to try to. We got [00:54:30] to get through next tax season. This one's going to end and we got to get ready for the next one.

Annie Schwab: I know it comes fast.

Roger Harris: All right Annie take us home. That's all I got.

Annie Schwab: That's all I that's all I've got. Um, kind of was a depressing podcast today. I don't know. We we didn't bring too many happy notes here, but, um, I do appreciate all the listeners. Um, once again, Roger and I love doing this. And if you have ideas that you want to share or things that you'd like for us to cover, please send us your suggestions. And as always, [00:55:00] we will be back in about two weeks or so with another podcast. And Roger, that's all I've got. So.

Roger Harris: All right. And remember we can now accept tips. So.

Annie Schwab: Oh yeah that's right, that's right. Let me know if you need my address or my email or something. You can drop me a gift card. Um, yeah. We'll see.

Roger Harris: Send your suggestions for future podcast with a $20 bill, and we'll.

Annie Schwab: We'll take it. Yeah. All right. Thank you so much. Roger. This was fantastic.

Roger Harris: Thanks, Annie. As always, thanks for listening.